National Semi to exit the PC business, expects charge

CBS.MarketWatch.com

SANTA CLARA, Calif. (CBS.MW) -- Investors rewarded National Semiconductor shares Wednesday with a 21 percent gain after the company said it plans to exit the personal computer business to focus on the information appliance market and its analog business.

"We will immediately cease slugging it out in the PC processor market, which has been dragging down our financial performance for several quarters," said Brian L. Halla, chief executive officer.

"By contrast, the information appliance market is now on the launch pad," he added.

Meanwhile, PaineWebber analyst John Lazlo reiterated a "buy" rating and increased his price target to $25, saying that the exit demonstrates how difficult it is for National to compete with chip giant Intel
INTC, -0.83%
who occupies roughly 85 percent of the microprocessor market.

A one-time fourth-quarter charge is expected to range between $250 to $300 million as National transitions out of the PC processor business and begins to cut its work force.

As a consequence of its new plan, National
NSM, -0.82%
said it will cut 550 jobs.

Most positions will be eliminated through early retirement, attrition and layoffs. The reductions include 165 job cuts in Singapore announced in April. The layoffs represent less than 5 percent of its employees, the company said.

National said it also plans to sell a majority interest in its South Portland, Maine, wafer fabrication plant. According to the company, it's in talks with potential partners for the facility. It said the sale's impact on fourth-quarter results depends on the outcome of the talks.

Analog angle

National Semiconductor said it'll continue to focus on analog products which accounted for about 70 percent of its fiscal 1999 sales through the third quarter.

"National is returning to is roots as a major player in the analog and mixed signal businesses," Lazlo said in a research note.

The company said it will fuel the growth of the information appliance market by delivering Internet connectivity to office, home and mobile users.

National said it anticipates sales in fiscal 2000 to rise above those of fiscal 1999 as double-digit growth in the analog and information appliance markets offsets the eliminated PC processor sales. Gross margins are expected to return to the mid-40s as a percentage of sales.

Upon completion of the restructuring, the company expects to return to profitability in its fiscal 2000 second quarter, ending in November.

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